tv Press Here NBC August 28, 2011 9:00am-9:30am PDT
by chevron. we may have more in common than you think. the multibillion dollar video game industry loses yards to startups like zynga and new technology like iphone. electric i can arts peter moore sits down with us to plot the future of the world's largest video game maker. later, peter sims taking little bets. showing you how silicon valley success comes one small step at a time. our reporters, richard waters of london's financial times and j.p. linden of fortune. this week on "press: here."
good morning everyone. i'm scott mcgrew. we're going to talk disruption. the combustion engine the buggy -- the electric light disrupted candles and then there are the angry birds. yes, those angry birds. you may think of them as a fun distraction, but in fact, angry birds and other casual games have been a huge disruption to the video game industry. nintendo's been crushed by the popularity of these inexpensive apps. have you seen a kid playing game boy lately? he's more likely playing with a parent's iphone. the world's largest video game maker, electronic arts, sells traditional x-box and playstation games for $50 or $60. zynga's farmville has disrupted that. farmville could be played for free. now, traditional video games
still make a lot of money. call of duty black ops earned a billion dollars in the first six weeks in stores. e a's madden football has earned $3 billion over its lifetime. the latest version, madden 2012, hits stores the end of the month. peter moore is a legend in the video game industry. he's the former head of seg a america, former head of x-box, electronic arts these days. he's also a former p.e. teacher. joined by j.p. of fortune richard waters. special welcome to j.p. for joining us this morning. peter, that's a fair assessment, isn't it? that things have changed tremendously in the video game industry? >> absolutely. in the last three to o four years, the proliferation of platforms, hundreds of millions of people coming in calling
themselves gamers is an opportunity. as for the package, it's different than five, six years ago where we were console focused. focused on that 50 to $60 game and maybe on the off line experience, j.p. and i playing on a couch together. the world is opened up through connectivity that we think our gamer, hundreds of millions of people interacting with the fifa game anywhere in the world. you have an internet connection, you can play. >> you've always had call the duty, blockbuster competition. but now your competition are the 99 cent games. who would have thought the $50 game and the 99 cent game being in the same sort of category. >> yeah. we're obviously embracing that as well. recently we acquired play fish, the publisher for the social games, the free-mium games with our competitor at zynga. we have sims social being the most recent that launches from are free to play.
this attracts more and more people into the world of gaming. our ability of course is to be able to provide them first of all with an embracing and compulsive experience. secondly, obviously, our goal is to try to -- the end of this week, it's hard not to think about steve jobs. i think this happened in the valley for a long time. >> absolutely. >> it's very hard to know what the longer term implications will be. just to look at your industry, apple was not big in games and yet, they themselves have revolutionized the games industry. >> no doubt. i mean, what i think they've done, rich, they've dee mock rah advertised gaming. we looked at angry birds. if you can do that with your index finger, you're a gamer. previously you need the ability. j.p. remembers this. buttons and triggers and analog sticks. now it's simply the swipe of a finger makes you a gamer. what apple has done with the iphone and ipad is put gaming
machines in the hands, if you will, of the proletariat. you don't need a dedicated game to have hundreds of games at your disposal. i was on a flight to europe last week and looking in the cab inwatching people play angry birds, play zombies on their ipad. you can play these off line, boggle on my ipad. to your point, what apple has done just recently, though, because they -- it wasn't part of the strategy on the mac. but as soon as gaming was mobile and inexpensive, what the ios systems on the iphone and ipad have brought hundreds of millions of more people in and said we're a gamer. >> just to finish up on that thought, one of the tourisms of technology, for any new platform, gaming is the lead application is the thing that drives the widespread adoption, whether it's social networking or whether it's ios or whatever it is.
yet, it's sometimes -- sometimes seems that your content is the thing that's driving these things. it seems as though it's the platform makers that come out on top here. it's apple, it's charging 30% and controlling the app store. it's facebook that's now running the show. so shouldn't you guys be in the lead in all of this? >> well, we'd like to think electronic arts that certainly we play both sides, if you will. there are platforms that were powerful on. the consoles with sony, microsoft, nintendo. great partners for the quarter of a century. more recently apple, more recently than that, facebook. we like to think wherever there's a screen and buttons, an electronic arts experience will be there. our acquisition of play fish allows us to be powerful on the facebook platform. more recently, we acquired pop cap, it's on the very popular game across the area. we're spreading our bets and making sure wherever gaming is taking part, we're there, we're a player and in most instances the number one player.
>> speaking of microsoft, nintendo, how worried should they be about this casual gaming? >> j.p., they have to figure out the long-term strategy. in microsoft's case, they're more than a gaming company. it's probably nintendo placing big bets on the wii u. the 3ds has had a lackluster start. of course, there was a recent price drop, which was very early in the generation of a piece of hardware. not surprising to watch the numbers but surprising to see a nintendo console drop in price so suddenly. sony has always looked at their ability to be able to drive gaming through the brilliance of playstation and now playstation 3. sometimes as a little bit of a trojan horse for their broader corporate strategy, whether it's blu-ray, driving hardware sales of televisions or some audio equipment. we look at sony as a different beast. they're catching up now with on-line. microsoft, of course, with thex
box. x-box live became the killer application, not only for them, but the industry. connecting tens of millions of consumers every night via television set so they can interact. >> my x-box does more and more, netflix, hulu, facebook on it now. is that good or bad for you? i can see both sides of that coin. it's good because more people buy x bobbi-boxins to watch net it's an easy argument to have with your wife or girlfriend why you need that. it's no longer a dedicated gaming device. to your point, scott, you can do netflix, power hulu. x-box live arcade. the marketplace it's rich in broad entertainment. >> those are situations in which i'm not using ea content. i'm not saying i ought to buy myself a new game. >> you're going to watch a movie whether through your x-box 360
or your cable tv set or a piece of plastic in a red envelope. who knows? from the perspective of having a gaming console that becomes the primary way you connect entertainment is good for the industry. it's our job really to provide entertainment experiences, to be able to take advantage of that. >> the big question that we're all asking, you already talked about here is digital right now. there's this transition, there's a big tipping point from customer behaviors, they can get them in different places. the history of traditional media companies moving to digital has not been a pretty one. >> that's right. >> you are putting down big bets to say 1.4 billion dollars for pop cap which doesn't make a lot of money. >> well, to be clear as well, that would -- if it gets to 1.4, it's actually 1.3 -- >> it would have made a lot of money. >> it would have made app enormous amount of money. >> either way, right, there's 800 million downpayment or whatever it is. there are big bets being put
down, disney put down extremely big bets. >> yes. >> for you, as a traditional media dp, digital will remain a small part of the business. you're stuck in this transition point where i'm sure a month from now, scott will be sitting here talking about zynga with his $20 billion market capitalization as the holding out there. after their ipa and you with this great traditional business will be, well, i wouldn't say limping along. in market, cap terms, relatively small. how do you handle this transition from here to what you become in five offer ten years? >> the week i arrive at electronic arts in the fall of 2007, our ceo brought all of the senior executives to new york and made a presentation which stays with all of us. it's called the burning platform. he laid out the fact of the matter that you're exactly right. but four years ago said that unless we make a radical change in our business, this rosie business model of selling lots of disks to people around the
world will eventually go away. what we need to do from that moment on, which we did, is invest in back end infrastructure, global billing systems and most importantly, building software databases allowing us to recognize them, reward them when they come on to an ea experience. regardless of the platform. we've done that. the icing on the cake is layering the more casual and social content. the acquisitions of play fish and pop cap being the representation of that. unlike i would say all the other traditional publishers in the video game business who continue to try and reap the rewards that we currently still see of monster hits such as the call of duties of this world and the grand theft autos and the red red redemptions and in our world battlefield. but we have not stood still. from that moment on to where we stand today, we have positioned ourself for the future. we're going to be one of the few web point 10 companies that will
cheer clear here." we're talking with peter moore this morning of electronic arts. j.p. manage linden of fortune. why don't you take it from here. >> peter, you've worked at microsoft, you've worked at sega. you have not worked at nintendo, correct me if i'm wrong? >> that's correct. >> nintendo is in a precarious position. they've slashed. the 3ds price. they slashed the profit outlook by 82%. very drastic. what do you think nintendo needs to do moving forward to sort of pivot? >> well, to be fair, what they've done here is they've always been creative and taken the risks. we all scoffed in the industry when the wii came out. we all said what is this? they come off a disaster which was the game cube which didn't
hit the numbers they needed to. but they reinvented themselves as the chairman has driven the company now to be able to go forward into this broader world that we're now looking at. the wiiu is a big bet for them. >> explain the wii-u. >> it's the next generation machine. sometime in 2012 it will launch. it has an interesting interface in that you and i can have, if you will, an ipad type device on our laps, controlling the input. rather than the controller. you can see a secondary screen. for example, if you think about madden football, you can actually be calling the plays on this device without your opponent who maybe sat next to you on the couch seeing what play you're drawing up. that in itself allows a sedentary input. in this two-screen world we often live in, it plays well into that. to j.p.'s point, it is a pivotal moment. they need to get the first party content, they need to drive
killer apps from the get-go. ea will be there at launch. we'll have the key franchises in support of them. it will be a pivotal moment. we're rooting for them. it's important that -- it was founded in 195 on the premise of fun and they still are there. it's important for the industry that they succeed. >> have you played with the wii-u yourself? >> i have held some of the prototypes. we're working with the development studios around the world and looking at how to bring it to life. our sports games. you can imagine our first person shooter games, such as battlefield franchises, how do you actually input instructions, if you will, to your characters on the screen without your opponents seeing haes going on there. which is a little bit of a challenge in the single screen environment you often see in gaming. >> we have about two minutes left. let me hijack it. when you were the head of sega after a couple of months of a wonderful video game system, you shut it down. you canceled the dream cast program. like hewlett-packard shutting
down. i understand hewlett-packard is infinitely bigger. talk about the pain of that. the hewlett-packards of in world saying, you know what, we just put this tablet on the market. >> yeah. >> and now we're going to shut it down. >> it's funny you say that scott. it brought it back to me. j.p. and i were talking earlier. spectacular game system. to sony's credit, they absolutely came in, in march of 2000, started a p.r. campaign that made the dream cast look like a transitional platform. >> after just a couple of months. >> yes. we had been -- it had a rough start in japan. we launched on 9/9/99. gamers still remember that date. i can walk through an airport today, somebody recognize me and say i love the dream cast. but the might of sony in those days, the integration of dvd playback was so important for the playstation 2. they talked about the emotion engine and the games would come to lifelike toy story on the big screen. >> i understand why you shut it
down. but it still, it's gutsy to walk into a thing and say remember two months ago when i was saying it was awesome, we're shutting it down, closing the factories. for a company to do that was gutsy. >> it was the only choice we had. we need to move our core competency to be a third party developer. we could no longer sustain the loss that is hardware were causing us. we had a number to hit by the christmas period that we fell short of. then we hosted a conference call i'll never forget on january 31st, 2001 in which we announced we're closing down hardware production. the dream cast was going to be sold off like touch pads for $99 now. the one thing about sega, they moved relatively successfully, swallow their pride. the adversaries became partners. sega became a third party publishers and sonic the hedgehog shot up on playstation
when "press: here" continues. welcome back to "press: here." each year the financial services company j.p. morgan chase comes up with a reading list, suggested homework for its employees and high worth clients. it's been called the billionaire book club. one of the books selected is little bets by peter sims. how breakthrough ideas emerge from small discoveries. a look at how the biggest and best ideas are, in fact, a series of sometimes unsuccessful steps. peter sims' work appeared in the harvard business review, fortune and tech crunch. before becoming an author, he
worked with summit partners and venture capital as well. good morning to you. thank you for being with us. >> thank you so much. >> explain a little bet to me. what is it? >> it's a small affordable action that anyone can take to discover and develop new ideas. the analogy i like to use, when you see chris rock on hbo. to get there they've spent months in small clubs trying out idea after idea. >> you didn't write a book about practicing? >> practicing what? >> anything. >> it's a practice of thinking how to -- it's learning how to think out of box and be a creative thinker. we have an education system to -- when in reality, with starbucks when they opened the first stores, howard schultz said i had a great coffee experience in milan. it had nonstop opera music and menus in italian. >> he duplicated what he saw in milan. >> the essence of that was a communal coffee experience.
he was willing to trade off on putting chairs in the stores and changing the menus. but he wanted to preserve that basic essence of what he started with. but he had to learn as he goes. as schultz said, he had to make a lot of mistakes to discover what was going to work. >> we in the media and everyone on wall street, we're always urging big bets and -- >> why? >> if you -- in fact, all right. so one of the things you hear a lot from people is don't sweat the small stuff. what matters is the big bets you place and whether they work. hp is very much in all our minds right now. hp has been under fire for years for having made the wrong strategic bets earlier. should they be in pc's. they've been fighting that question for ten years. finally, a ceo comes along and makes a big bet and he says what a lot of people said all along. lets get out of pc's. everybody hates it.
but isn't he doing the right thing? >> you know, i'm not an innovation researcher. i've synthesized field research to come up with this book. if you look at what clayton christien son says, he says if you have to change your business, don't make the big bets. because that's where companies get into trouble and where they go into decline and fame you are. if you look at innovator solution as well. the research is pretty conclusive from an innovation standpoint. in hp's case, they had for a long time made a history of small bets. that was bill hewlett's philosophy for inrow vegas. that was balanced out by packard. it was a good team. they got into a bunch of businesses over time by making small bets. it was a decentralized company grew by 18% a year for 60 years on average. then it got into a period where it had leadership challenges. and then they started making big bets. i feel like that's the sign that
hp is for decline or what have you. >> peter, what about apple, which is a company i think on a lot of people's minds this week. do they operate in that small bet sort of philosophy? >> there are two parts of apple. one is that steve jobs has an amazing capacity to know where technology vectors are going and to be able to anticipate the type of product that people are going to want before other people. he's a genius. he's a prodigy. if you look at the research on creativity, prodigies are very rare. if you look at how jobs and apple developed an ipad or iphone, it's all by using design thinking, principals for rapid prototypi prototyping, lots of iterations to discover what that phone or packaging is going to be. jobs is a big believer in the little bets approach i described. >> he had a little bet with pixar. it turned out to be a blockbuster. but it was a surprising little, very small purchase. >> totally. i mean, he thought when he bought pixar from george lucas,
it was a hardware company. it was a hardware company that was run by some people for george lucas, ed cap nell and john lasster who wanted to make a full length film back when full length digital film was off. he bought the company for $5 million in cash and $5 million in working capital. the fact of the matter is, they never really sold the hardware but they made small bets in short films. >> the key was the short films. the ability -- but those had to be funded and had to be approved by jobs. >> absolutely. >> this was a hardware company, why are you making little films? >> you have to give jobs tremendous credit. because he invested a total of about $50 million in pixar of his own capital over time because they were losing money every year. he let ed camp mel and lasster was a former disney animator who made the short films, one minutes, two minutes. they learned how to do the storytelling through the short films. jobs was willing to fund those
even though it was not core to the business. and then over time, they developed a credibility to be able to work with disney. >> the whole success is based on turning small bets into huge new industries. >> absolutely. >> the stage at the moment where some of the companies that have grown up on the back of that, by themselves facing this challenge of should they place more bets, big ones? is there a way for big companies to do what you're talking about. take two examples, cisco, john chambers was hugely successful ten years ago placing lots and lots of small bets and a lot of those turned into billion dollar businesses. guess what, he had too many and couldn't control the company any more. >> it looks like and google is the other one. >> sure. >> google has just shot google labs because they've decided we're actually trying too many things. just making too many small bets. this is a real -- >> listen, it's a decision that every leader has to make.
jeff at amazon chooses to make small bets on getting into new markets. how they got into amazon web services. he does that with 10, 15% of his time. he's done -- his team has done a good job of creating new markets by making side bets while still running a core business very well. some of the other companies you've mentioned, cisco and google, have not had that approach. they're still great companies. google had to have that approach. they're moving more to big bet mentality now which i think is a mistake. cisco has had the mentality of making small bets but they've made them through acquisitions over time. they haven't had a mind-set for having their people go out and try things. that's what i'm arguing in this book. >> peter sims, his book is little bets. thanks for being with us this